UPDATE 1-Greek bond yields near record lows as IMF repayment hopes grow

Greek government bond yields were closing in on record lows on Monday after an official said a deal to repay International Monetary Fund loans is imminent, which would mark another step forward from the Athens's debt crisis.

A senior official said late on Friday that Greece was looking to strike a deal over the weekend to repay early about half the loans it got from the IMF, in a bid to lower its debt-servicing costs. Greece's benchmark 10-year government bond yield slipped three basis points to 3.27 percent, its lowest since September 2005 and approaching the record low of 3.203 percent.

Five-year yields also reached a 13-year low of 2.15 percent . "If they do accomplish the early repayment, that helps them reduce the interest rate burden, and adds to what has been quite a good performance story," said Commerzbank rates strategist Christoph Rieger.

Sources told Reuters that Greece is planning a bond issue in late June to raise money for the repayment. Most euro zone bond spreads have been tightening after Europe and China released improved data late last week. German 10-year yields, the benchmark for the region, hovered near a three-week high at 0.06 percent.

"We have had some positive data surprises both in EUrope and in China last week, and that takes the edge off the macro fears. And you also have some positive undertones on U.S.-China trade talks and you don't have this Brexit cliff edge anymore," said ING rates Benjamin Schroeder. He added, however, that the six-month Brexit extension is unlikely to change central bank plans as they have a longer-term horizon.

Euro zone industrial output declined in February but by less than expected, as mild weather meant a surge in energy production at the start of 2019 reversed. ING believes "semi-core" spreads -- referring to the likes of France and Belgium -- should benefit the most, but Italian bond spreads could also tighten, given some supply constraints.

And indeed, Italian yields edged lower on Monday, outperforming the rest of the market. The benchmark 10-year yield fell to 2.53 percent, and the Italy/Germany 10-year yield spread tightened to 247 bps., (Reporting by Abhinav Ramnarayan; editing by Larry King)

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